1. Since September 2000, Israel has faced
a relentless wave of Palestinian violence. Between 28 September
2000 and 12 November 2003, there have been almost 20,000 attacks
against Israeli targets in the West Bank, Gaza Strip and Israel.
These attacks have included suicide bombings, shootings, mortar
attacks and stabbings, and have resulted in almost 900 Israelis
being killed and almost 6,000 injured.[34]

2. Under these extremely difficult conditions,
Israel has been faced with the challenge of doing its utmost to
protect its citizens, while doing as much as it can to minimise
the impact of tightened security on Palestinian society. This
is not an easy balance to achieve, and Israel is constantly seeking
for ways to address the needs of the innocent Palestinians. Among
many other measures for example: 38,200 Palestinians are currently
permitted to work in Israel; 10,000 Palestinian merchants are
permitted to enter Israel, approximately 1,500 Palestinian trucks
are authorised to transit goods into Israel and approximately
1,150 Palestinian employees of international organisations are
permitted to enter Israel and travel between the Gaza Strip and
the West Bank.

3. A recent International Monetary Fund
report illustrates just how detrimental terrorism has been to
the economic and social welfare of the Palestinians.[35]
In the five years prior to the start of the violence (1994-99),
the Palestinian economy had proved remarkably resilient, growing
at a strong rate, generating jobs and increasing the living standards
for its rapidly growing population. Furthermore, the IMF also
noted that whilst the violence has clearly led to a major decline
in the Palestinian economy, it did not totally collapse. Indeed,
given the extraordinary circumstances the Palestinian economy
proved surprisingly robust. By early 2003 there were even signs
that the downward trend had been stopped and that the economy
was beginning to stabilise.

4. Yet it is not only terrorism which has
been the cause of the Palestinians' plight. They have also suffered
greatly from the corruption of their leadership. In recent years
the international community (mostly European and Arab countries)
has sent large sums of money to help support Palestinian basic
needs. However, documents captured by the Israeli Defence Forces
in Palestinian military headquarters reveal significant levels
of Palestinian Authority (PA) corruption and waste, as well as
evidence indicating that humanitarian aid has been used to directly
and indirectly finance terrorism. (See attached document 1[36]).

5. Among the documents found were hundreds
of receipts along with photocopies of cheques and other documents.
These relate to the transfer of significant sums of money to senior
and lower-level operatives and others. These funds were used not
only for preventive security (such as intelligence gathering and
preventive operations) but also to finance and initiate terrorism.

6. Funds were also transferred to various
financial concerns in which the Preventive Security leadership
has interests, as well as to payments providing "assistance"
to the heads of the Preventive Security apparatus, their associates
and those favoured by the Preventive Security authorities (including
senior political figures). The payments were transferred directly
by the Preventive Security apparatus, and occasionally by the
Palestinian Ministry of Finance.

7. Sometimes these payments occurred with
Yasser Arafat's personal approval and sometimes without his direct
involvement. At times, the funds were transferred directly to
the beneficiaries, and at other times, they received the payments
through an intermediary.

8. To illustrate of the levels of corruption
within the PA, one can look at the PA's payroll. According to
official declarations given to aid agencies, the PA claims that
it requires $60 million each month to pay salaries, from its total
monthly budget of $90 million. However, captured documents (mostly
from the end of 2001) show that the PA uses a double reporting
system, and in fact needs only 55%-65% of this amount. The PA
registered salary expenses of around $40 million, about half for
security forces. It then used a low exchange rate during payment
of salaries in shekels (3.7 shekels = $1, instead of the representative
rate of 4.4 shekels). This created a surplus of $7.7 million.
It is therefore clear that this section of the PA budget has been
used for the accumulation of surplus funds and their diversion
to other purposes.

9. Furthermore, the PA also deducts 1.5-2%
from the salaries of security forces personnel as Fatah membership
fees, as well as placing many hundreds of Fatah activists on the
payroll. Many of these activities are engaged in terrorist activities.
One such recipient was the commander of the Al-Aqsa Martyrs Brigade,
who was responsible for attacks in which 17 Israelis were killed.

10. The decision to integrate Fatah activists
into the PA's payroll is personally taken by Yasser Arafat, wearing
his triple-hat as Chairman of the PA, the PLO and Fatah. His handwriting
and signature can be found on many of the relevant documents.

11. The captured documents therefore prove
that over many years, the PA has used international aid in order
to establish a broad infrastructure of Fatah branches and activists,
who in time became armed local militia. This was a deliberate
and calculated move, which took place throughout the Oslo peace
negotiations, and many years before the start of the violence
in September 2000.

12. In conclusion, the well being of the
Palestinian people is in everyone's interest, including Israel.
A sustainable economic and social infrastructure in the Palestinian
Territories will help discourage Palestinians from engaging in
terror activity. To this end, and despite urgent security concerns,
Israel has done its utmost to ensure that its legitimate security
precautions have as little effect on Palestinian life and economic
activity as possible. Tragically, through corruption, waste and
its redirection of vital funds to terrorist activities, the PA
has consistently acted against the best social and economic interests
of the Palestinian people.